FED MEET – NO SURPRISES HERE; DEC SEEMS SURE SHOT

By Ruma Dubey

No surprises here. The Fed sat pat on the rates and now the whole world is certain that the interest rate hike is a certainty in the December policy.

While signaling a rate hike in December, the Fed presented a very robust picture of the economy stating, “hat the labor market has continued to strengthen and that economic activity has been rising at a solid rate despite hurricane-related disruptions. Although the hurricanes caused a drop in payroll employment in September, the unemployment rate declined further. Household spending has been expanding at a moderate rate, and growth in business fixed investment has picked up in recent quarters. Gasoline prices rose in the aftermath of the hurricanes, boosting overall inflation in September; however, inflation for items other than food and energy remained soft.”

A quick look at the Fed statement:

• The Committee decided to maintain the target range for the federal funds rate at 1 to 1-1/4 percent
• The stance of monetary policy remains accommodative
• Balance sheet normalization program initiated in October 2017 is proceeding
• Economic activity has been rising at a solid rate despite hurricane-related disruptions
• On a 12-month basis, both inflation measures have declined this year and are running below 2 percent.

Actually, no change in the Fed rate was a given and the world is waiting for Trump’s announcement – who will be succeed Yellen? The names doing the rounds - Jerome Powell, Stanford University economist John Taylor, former Fed Governor Kevin Warsh, and current Chair Janet Yellen.  In fact Yellen, irrespective of whether or not she is re-nominated, will chair two more Fed meets – one in December and the other one in January. And she will leave behind a much stronger economy, better inflation and employment numbers.

More than the US Fed, for a change, this time around, all eyes are on UK’s Bank of England (BoE), which almost after a decade is expected to announce a rate hike today. This, plus European Central Bank’s decision last week, all are pointers to the fact that the stimulus crutch is finally being withdrawn after years of lending the required support. Last year, BoE had cut its benchmark interest rate to a three-century low to cushion the U.K. economy from any shocks from voters’ decision to exit from the bloc and we will finally see all that unwinding. Looks like the central banks across the world are moving from extraordinary to ordinary circumstances now.

India will not be waiting with bated breath for the BoE rate hike tomorrow; it will be business as usual and once again focus will be stock specific, based on earnings. Andhra Bank, CCL, Dalmia Sugar, HCC, Glenmark, Nacto Pharma, TCI, Ujjivan are some of the companies expected to announced their results today. The moods are jubilant after the 30 spot jump in Doing Business Index; FIIs are also back and this is expected to keep the sentiments and index buoyant.